freedolnomics.com

Inflation and why its coming

Recently I just got published by the Edmund Burke institute about inflation. The editor really changed it,
so below I posted the original, and here you can read the published version
Published version

Inflation is a real dangerous threat facing our society, and it comes in many ways, not just from monetary policy. Many companies will be inflating their cost structures due to new federal safety regulations that will be enacted this year. This will be done by forcing companies to institute costly record keeping procedures and tougher pollution regulations, which will require companies to replace four to six year old trucks, with units that will cost 10%-15% more, which will ultimately be passed onto you the consumer. Another reason Inflation will soon come to America is due to employer health care costs. This will happen because Obamacare now requires employers to cover dependents until age 26, and eliminates lifetime caps on reimbursement due to Obama Care (aka Death Care). Not only that, but an excise tax on defibrillators and other medical devices will add 2 billion dollars a year on health care expenses, and every time you tax a business, the business always passes that cost onto you the consumer. We will also see Inflation because overall regulatory costs in all businesses are starting to rise, due to increased federal regulations, as well as new regulations that come from the financial reform bill. On a side note, this financial reform will give the Federal Reserve power to take over any bank they deem “too big to fail”; yes the same Federal Reserve that printed new money, which devalued your savings, so they can give that newly printed money to their buddies overseas in foreign banks.

The biggest reason inflation will be coming to America, is that quantitative easing will continue. The Fed is continually buying US Treasury debt by printing more money, to finance trillion dollar deficits that will continually be financed by the Federal Reserve’s printing press, due to the lack of demand for these treasuries in the market place.

What the majority of people fail to see, is that inflation is a hidden tax. Politicians in fact love inflation, because it allows them to overspend, run up large deficits, and accumulate debt that will be repaid with devalued currency. Inflation penalizes the working poor and middle class, due to the fact that their incomes never rise as rapidly as the prices on consumer goods. At the same time, inflation pushes all of us into higher tax brackets, raises the tax revenue on gasoline, excise-taxed expenditures, and allows local governments to collect more money on real-estate taxes.

What most people fail to understand about the CPI, aka Consumer Price Index, is that the accounting they use to calculate the core rate of Inflation would make Ken Lay the founder of Enron blush. The first reason the CPI Numbers are cooked, are due to the fact that most health care costs do not show up in the CPI index, because the CPI ignores employer health care expense. Next, the CPI doesn’t include food and energy costs. The CPI also allows the substituting of cheaper low quality made products in place of regular products. The CPI index is computed in a manner to ensure that the Treasury Department won’t have to pay out more money in TIPS (Treasury Inflation Protected Securities).

Another reason Inflation is coming is because of our National Debt, as well as Interest Rates. Low Interest rates, as well as government policy, make loans more readily available for everyone to acquire. Due to this easy money, as well as this easy lending economic climate, people who wouldn’t normally take out loans due to the interest they would normally have to pay back, now start entering into the barrowing market, because of the lack of interest they will have to pay back. As a result this creates poor investment loans, which always results in a bursting bubble. But this time it can be the currency that bursts, and not technology stocks or houses. Our National Debt will explode because the style of accounting the Federal Government uses to showcase its balance sheet is fraudulent to say the least. First off, trillions of dollars in unfunded liabilities in Social Security and Medicare aren’t even on the balance sheet. Secondly, right now with Interest rates being at an all time low, their bound to go up, interest Rates can’t stay low forever, and when interest rates do go up, the amount of Interest we would have to pay on the debt will skyrocket, and we might not even be able to pay off the Interest of our gross national debt, much less the principled amount. Also Fannie Mae and Freddie Mac are in a combined 6 trillion dollars worth of debt, if they can’t pay that back, their debt is backed by the US government, so overnight if Fannie and Freddie default on their debt, our national debt can go from over 13 trillion dollars to 19 trillion. The government only has two options, default on our debt that we owe to countries like China and Japan, making them angry, or inflate our way out of debt, making our debt easier and cheaper to finance from foreign government and banks.

Also with China, Russia, and other emerging markets pushing to oust the dollar as the world’s reserve currency, if that gains momentum, the stock piles of dollars being held overseas, as well as US treasuries, will be dumped out of the foreign banks and government holdings, and will be sent back to the US. If, or when this happens, millions of dollars will then be put back into our monetary system, and cause a massive expansion in our money supply. Contrary to popular belief, inflation isn’t more money than goods and services, it’s an expansion in the money supply, and if, or when foreign holdings in the dollar are put back into the US money system, the money supply will increase at such an astronomical rate, that the result of inflation (higher prices), may not be controllable. I would suggest you buy some Gold, Silver, or other Precious metals, as a way to protect your savings from the Fed, and Washington’s relentless assault on your wealth and prosperity.


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